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Vancouver steps up as next tech hot spot

VANCOUVER—If you follow the money, the Northwest’s hottest startup is now about 220 kilometres north of Seattle.

Called HootSuite, it’s a 370-employee company at the heart of a resurgent startup community in Vancouver.

In British Columbia, tech is growing faster than the region’s traditional forestry, mining and energy industries, and now employs more people—more than 80,000 at 8,900 companies, including at least 350 active startups.
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In August, HootSuite raised an eye-popping $165 million (U.S.) from venture capitalists who backed Facebook and Twitter. That’s 20 times more than the average Northwest startup raised last year and more that most Silicon Valley companies ever see.

HootSuite is in a thriving category. It makes tools that companies around the world are using to manage their presence on social networks.

But there may be another reason investors showed up at its Canada-chic offices this past summer, bearing truckloads of cash.

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In tech circles, Canada is a hot new destination, despite the troubles of its beloved BlackBerry. Generous tax benefits and flexible immigration rules have long been a draw, but a bigger attraction now is Canada’s relatively abundant supply of engineers, available for a fraction of the salaries that engineers demand in Silicon Valley.

This may lead to tension between homegrown ventures and the U.S. companies setting up satellite offices north of the border, but for now it’s an enviable situation.

In British Columbia, tech is growing faster than the region’s traditional forestry, mining and energy industries, and now employs more people—more than 80,000 at 8,900 companies, including at least 350 active startups.

The concentration of tech companies in Vancouver still trails the ecosystem in Toronto, and startups in both regions have traditionally had less capital available to fuel their growth, according to a Startup Genome report on the world’s tech hubs.

But that may be changing. Venture capitalists from Seattle, Silicon Valley and New York are prowling Vancouver’s funky Gastown neighborhood and other hot spots, looking to get in on the action.

“There’s good stuff to be had, and it’s usually at a bit of a discount because the competition for it isn’t quite as high,” said Kristina Bergman, a principal at the Ignition Partners venture capital firm in Bellevue, Wash.

Bergman, a former Microsoft manager who grew up in nearby Victoria, said Vancouver isn’t likely to ever be as dynamic as Silicon Valley. But it’s moving into the second tier of tech cities alongside hubs such as Seattle; New York; Austin, Texas; and Canada’s tech strongholds in Montreal, Toronto and Waterloo.

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“You look at HootSuite doing well and you can forecast 10 years down the road, there are going to be impressive startups in related spaces,” she said. “It’s almost an inevitability in high-tech. There will be smart, talented people who will spin out from successful companies in a particular area and start related types of businesses.”

Bergman was among a group of U.S. venture capitalists who spoke at the Grow tech conference, which brought investors and entrepreneurs from across Canada and the U.S. to Vancouver in August to look for new companies to back.

Meanwhile, a wave of big American tech companies has arrived. Amazon.com, Twitter and Facebook have set up satellite engineering offices in the Vancouver area.

Engineers can be hired in the Vancouver area for a third or half of what they’d be paid in Silicon Valley, where the talent crunch also leads to frequent job-hopping between companies.

“If you don’t have to pay three times for the same person, why would you? That’s the kind of conversations that happen,” said Brian Wong, chief executive of San Francisco-based mobile rewards venture Kiip.

Wong grew up in Vancouver and left to pursue his fortune in Silicon Valley. Now he’s opening a satellite office in his hometown.

“We’re also going to have people who are extremely excited and grateful to be employed as well,” he said during a break at the Grow conference, over the roar of seaplanes flying in and out of downtown’s harbor. “The best part about Canada is that the job market for the youth demographic is something that’s just starting to improve.”

In years past, Canada’s faster visa process has been a draw for U.S. tech companies trying to lure top engineers from around the world. But that’s less of an issue now that the U.S. Congress is leaning toward allowing more foreign tech workers as part of immigration reform it’s considering.

Canada’s federal and provincial governments also dangle all sorts of tax benefits, including a federal tax credit that can work out to about 40 cents per dollar of salaries in research and development fields.

But those incentives ebb and flow, depending on the political mood. Vancouver provides evidence that they may not be the best way to build a lasting industry.

Special tax credits and relatively low wages helped build the region’s film industry. Later they were extended to video-game companies, turning Vancouver into one of the world’s leading cities for game development.

Then the tide turned and thousands of those jobs evaporated in the past five years. The recession hit as the industry entered a low cycle. But Vancouver was hit particularly hard because other provinces were offering more lucrative subsidies that lured away major studios.

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